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- 1. Chapter 11- slide1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Nine Pricing Strategies
- 2. Chapter 11- slide2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Pricing Strategies • New-Product Pricing Strategies • Product Mix Pricing Strategies • Price Adjustment Strategies • Price Changes Topic Outline
- 3. Chapter 11- slide3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies • Market-skimming pricing • Market- penetration pricing Pricing Strategies
- 4. Chapter 11- slide4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies Market-skimming pricing is a strategy with high initial prices to “skim” revenue layers from the market • Product quality and image must support the price • Buyers must want the product at the price • Costs of producing the product in small volume should not cancel the advantage of higher prices • Competitors should not be able to enter the market easily
- 5. Chapter 11- slide5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share • Price sensitive market Low prices must keep competition out of the market Pricing Strategies
- 6. Chapter 11- slide6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Pricing Strategies Product line pricing Optional- product pricing Captive- product pricing By-product pricing Product bundle pricing
- 7. Chapter 11- slide7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices Optional-product pricing takes into account optional or accessory products along with the main product Pricing Strategies
- 8. Chapter 11- slide8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Captive-product pricing involves products that must be used along with the main product Two-part pricing involves breaking the price into: – Fixed fee – Variable usage fee Pricing Strategies
- 9. Chapter 11- slide9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Mix Pricing Strategies By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery. Pricing Strategies
- 10. Chapter 11- slide10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Mix Pricing Strategies Product bundle pricing combines several products at a reduced price Pricing Strategies
- 11. Chapter 11- slide11 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographic pricing Dynamic pricing International pricing
- 12. Chapter 11- slide12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product • Discounts • Allowances Pricing Strategies
- 13. Chapter 11- slide13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost Pricing Strategies
- 14. Chapter 11- slide14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies To be effective: • Market must be segmentable • Segments must show different degrees of demand • Must be legal Pricing Strategies Segmented Pricing
- 15. Chapter 11- slide15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics Reference prices are prices that buyers carry in their minds and refer to when looking at a given product – Noting current prices – Remembering past prices – Assessing the buying situations Pricing Strategies
- 16. Chapter 11- slide16 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Promotional pricing is when prices are temporarily priced below list price or cost to increase demand • Loss leaders • Special event pricing • Cash rebates • Low-interest financing • Longer warrantees • Free maintenance Pricing Strategies
- 17. Chapter 11- slide17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Risks of promotional pricing • Used too frequently, and copies by competitors can create “deal-prone” customers who will wait for promotions and avoid buying at regular price • Creates price wars Pricing Strategies
- 18. Chapter 11- slide18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Geographical pricing is used for customers in different parts of the country or the world • FOB-origin pricing • Uniformed-delivered pricing • Zone pricing • Basing-point pricing • Freight-absorption pricing Pricing Strategies
- 19. Chapter 11- slide19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies • FOB-origin (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer • Uniformed-delivered pricing means the company charges the same price plus freight to all customers, regardless of location Pricing Strategies
- 20. Chapter 11- slide20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies • Zone pricing means that the company sets up two or more zones where customers within a given zone pay a single total price • Basing-point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer location, regardless of the city from which the goods are actually shipped Pricing Strategies
- 21. Chapter 11- slide21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies • Freight-absorption pricing means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets Pricing Strategies
- 22. Chapter 11- slide22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations Pricing Strategies
- 23. Chapter 11- slide23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies International pricing is when prices are set in a specific country based on country-specific factors • Economic conditions • Competitive conditions • Laws and regulations • Infrastructure • Company marketing objective Pricing Strategies
- 24. Chapter 11- slide24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes • Price cuts • Price increases Initiating Pricing Changes
- 25. Chapter 11- slide25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Initiating Pricing Changes Price cuts occur due to: • Excess capacity • Increased market share Price increase from: • Cost inflation • Increased demand • Lack of supply
- 26. Chapter 11- slide26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Price increases • Product is “hot” • Company greed Price cuts • New models will be available • Models are not selling well • Quality issues Buyer Reactions to Pricing Changes
- 27. Chapter 11- slide27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Questions – Why did the competitor change the price? – Is the price cut permanent or temporary? – What is the effect on market share and profits? – Will competitors respond? Responding to Price Changes
- 28. Chapter 11- slide28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Solutions – Reduce price to match competition – Maintain price but raise the perceived value through communications – Improve quality and increase price – Launch a lower-price “fighting” brand Responding to Price Changes
- 29. Chapter 11- slide29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Responding to Price Changes
- 30. Chapter 11- slide30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Public Policy and Pricing Price fixing: Sellers must set prices without talking to competitors Predatory pricing: Selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business Pricing Within Channel Levels
- 31. Chapter 11- slide31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Public Policy and Pricing Retail (or resale) price maintenance is when a manufacturer requires a dealer to charge a specific retail price for its products Pricing Across Channel Levels
- 32. Chapter 11- slide32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Public Policy and Pricing Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers • Price confusion results when firms employ pricing methods that make it difficult for consumers to understand what price they are really paying Pricing Across Channel Levels
- 33. Chapter 11- slide33 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall
Editor's Notes
- #3 Check this
- #6 Note to Instructor The text gives an excellent example of IKEA in China: When IKEA first opened stores in China in 2002, people crowded to take advantage of the freebies—air conditioning, clean toilets, and even decorating ideas. Chinese consumers are famously frugal. When it came time to actually buy, they shopped instead at local stores just down the street that offered knockoffs of IKEA’s designs at a fraction of the price. So IKEA slashed its prices in China to the lowest in the world. The penetration pricing strategy worked. IKEA now captures a 43 percent market share of China’s fast-growing home wares market.
- #8 Note to Instructor This Web link brings you to Bluemountain.com. Many students may know this site for its free greeting cards. Notice how they have product line pricing—you can get some basic cards for free but need to join to be able to use more advanced features.
- #9 Note to Instructor Students will quickly realize this is what their cell phone bill might be. Ask them how they feel about this pricing. This Web link goes to an ad for AT&T’s campaign for rollover minutes.
- #12 Note to Instructor In slideshow view, click on movie icon to launch General Electric video snippet. See accompanying DVD for full video segment.
- #13 Note to Instructor Discounts are either cash discount for paying promptly, quantity discount for buying in large volume, or functional (trade) discount for selling, storing, distribution, and record keeping. Allowances include trade-in allowance for turning in an old item when buying a new one and promotional allowance to reward dealers for participating in advertising or sales support programs.
- #14 Note to Instructor The three types of segmented pricing are: Customer segment pricing is when different customers pay different prices for the same product or service. Product form segment pricing is when different versions of the product are priced differently but not according to differences in cost. Location pricing is when the product sold in different geographic areas is priced differently even though the cost is the same.
- #15 Note to Instructor Discussion Question How have you benefited from price segmentation? Most likely they have had student discounts. Ask them why that is effective given the criteria above.
- #16 Note to Instructor Discussion Question How well do you carry prices of coffee, pizza, and milk in your head? It might be interesting to collect the prices of items sold near or on campus including coffee, pizza, and sandwiches. Ask them how well they know these prices, have them write down the price of these items and then check themselves. You will often find that people do NOT know prices as well as they think they do.
- #17 Note to Instructor Loss leaders are products sold below cost to attract customers in the hope they will buy other items at normal markups. Special event pricing is used to attract customers during certain seasons or periods. Cash rebates are given to consumers who buy products within a specified time. Low-interest financing, longer warrantees, and free maintenance lower the consumer’s “total price.”
- #23 Note to Instructor There is an excellent example in the text for dynamic pricing: Alaska airlines Web banner promotes “fly Alaska Airlines to Honolulu for $200 round trip.” Alaska Airlines is introducing a system that creates unique prices and advertisements for people as they surf the Web. The system identifies consumers by their computers, using a small piece of code known as a cookie. It company then combines detailed data from several sources to paint a picture of who’s sitting on the other side of the screen. When the person clicks on an ad, the system quickly analyzes the data to assess how price-sensitive customers seem to be.
- #27 Note to Instructor There is an example in the book about a Tiffany’s price changes: In the late 1990s, the high-end jeweler responded to the “affordable luxuries” craze with a new “Return to Tiffany” line of less expensive silver jewelry. The “Return to Tiffany” silver charm bracelet quickly became a must-have item, as teens jammed Tiffany’s hushed stores clamoring for the $110 silver bauble. Sales skyrocketed. But despite this early success, Tiffany’s bosses grew worried that the bracelet fad could alienate the firm’s older, wealthier, and more conservative clientele. So, in 2002, to chase away the teeny-boppers, the firm began hiking prices on the fast-growing, highly profitable line of cheaper silver jewelry and at the same time, it introduced pricier jewelry collections, renovated its stores, and showed off its craftsmanship by highlighting spectacular gems like a $2.5 million pink diamond ring.
- #33 Note to Instructor This is an interesting Web link to the Professional Jewelers Magazine Web site. It contains an article encouraging jewelers to fight deceptive pricing in their industry.